Study: Consumer laws helped limit Chicago foreclosures

Regulations against predatory lending, a generous amount of time between foreclosure filings and sales, and collaboration between private and public organizations in Chicago helped prevent thousands of residents from losing their homes, according to a new report.

They classified Chicago and Atlanta as mixed-market metros, with elements of weak and strong real-estate markets and similar challenges in the foreclosure crisis. They also examined Cleveland and St. Louis, which they considered weaker markets, and California's Inland Empire and East Bay, traditionally stronger.

The goals of their report were to determine factors that help markets bounce back from such a crisis, and to discuss how state, federal and private-sector policies affect different metro areas. Researchers did not judge whether efforts to prevent foreclosures in Chicago were a success, but they concluded that it was among the more resilient metros in the study.

The authors cited Illinois regulations passed in 2001 and 2002 that protect borrowers from predatory lending, and state law that allows for 265 days between an initial notice of foreclosure until a foreclosure sale, more than twice as much time than the national average, 120 days.

They explained how the entire foreclosure process, from a loan provider's initial filing to a completed foreclosure sale or auction, can take a year or longer, a gap that effectively serves as a grace period for borrowers, according to the study.

"This relatively lengthy period provides more time for borrowers to become current on the loan, negotiate some sort of loan modification or repayment plan with the lender, or obtain legal counsel in the event that the loan involved potentially predatory or abusive features," the authors wrote.

According to the study, Chicago also benefited from an "extensive infrastructure of organizations focused on foreclosure prevention and neighborhood recovery."

The Woodstock Institute, a policy and advocacy nonprofit in Chicago, and the city's Housing Department "led the way in using data to cast attention on the issue," the authors wrote. Maps and detailed foreclosure updates helped get the issue on the public agenda, according to the report.

To highlight how the collapsing housing market affected neighborhoods, the Woodstock Institute partnered with EveryBlock, the Chicago-based public records site acquired this week by MSNBC.

Each EveryBlock report includes the block where the foreclosure occurred, the date the foreclosure was filed, the type of property involved (single-family structure, multi-unit structure or condominium) and a case number unique to each filing.

Authors also praised the city's Home Ownership Preservation Initiative, a regional effort that involves more than two dozen nonprofits and financial organizations, and they explained how collaborations between public and nonprofit groups helped mobilize resources for foreclosure counseling in the city.

For example, the city hosted 10 foreclosure-prevention fairs called Borrower Outreach Days from October 2007 through April 2008, after residential property values began to decline quickly in the summer of 2007. About 2,000 people attended these events, according to city estimates.

But the researchers noted that even the best counseling programs in the study were able to help only a small percentage of residents facing foreclosure, and that the level of counseling activity in the suburbs "appears to be much less than in the city."

"The foreclosure crisis has hit many suburban areas hard," they wrote, "but they often lack the network of housing nonprofits and the experience with housing policy in local government."

The authors concluded that, despite the importance of such networks, successful responses to foreclosure problems ultimately depend on forces outside local markets, what they called "vertical" policies that come down from the state and federal levels.

"The highest priority for state and federal governments is to enact regulations that would prevent the kind of predatory lending practices that created the crisis in the first place," they wrote.